Bloomberg News

Caterpillar Sees Sales Growth Slowing Next Year on Economy

October 22, 2012

Caterpillar Says 2013 Sales May Decline as Much as 5% on Economy

A Caterpillar Inc. truck moves through the Lodge House surface coal mine operated by U.K. Coal Plc., in Ilkeston, U.K. Photographer: Chris Ratcliffe/Bloomberg

Caterpillar Inc. (CAT:US), the world’s largest maker of construction and mining equipment, forecast (CAT:US) sales growth for 2013 that would be slower than in the previous three years as the global economy decelerates.

Sales next year will be from 5 percent below to 5 percent more than 2012 results, the Peoria, Illinois-based company said today in a statement. That compared with an average projection for an increase of 5.1 percent based on 17 analysts’ estimates (CAT:US) compiled by Bloomberg. Revenue year-over-year grew 31 percent in 2010, 41 percent in 2011, and was estimated to increase 13 percent this year.

“The biggest concern is the declining backlog, which would imply a more challenging year next year, especially for mining, and whether or not North American construction will re- accelerate,” Larry De Maria, a New York-based analyst for William Blair & Co. who has a buy rating on the shares, said today by phone. “Caterpillar’s business is very economically sensitive. Due to the softening of the global economy and increasing uncertainty, order rates have declined.”

The order backlog fell 18 percent to $23.1 billion at the end of the third quarter from three months earlier with the most significant decrease in the resource-industries segment, the company said. Production across much of the company has been reduced with temporary shutdowns and layoffs as it works through excess inventory, Caterpillar said in the statement.

Growth Decelerates

Chairman and Chief Executive Officer Doug Oberhelman has invested in Caterpillar’s factories and announced about $10.3 billion in acquisitions since becoming CEO in July 2010. His expansion plans are facing hurdles as the European debt crisis persists and economic growth decelerates in emerging markets from China to Brazil.

Third-quarter net income (CAT:US) increased 49 percent to $1.7 billion, or $2.54 a share, from $1.14 billion, or $1.71, a year earlier, the company said in the statement. Sales climbed 4.6 percent to $16.4 billion. The earnings include a pretax gain of $273 million from the sale of a majority interest in Caterpillar’s third-party logistics business.

Caterpillar’s 2013 forecast was mostly “in-line” with analysts’ estimates, De Maria said.

Slow global growth coupled with commodity prices that have declined from peaks earlier this year have resulted in reduced orders for mining products, Caterpillar said.

Metal Prices

Copper futures in New York have dropped 9.2 percent since the high this year in February as China’s economy has slowed.

Peabody Energy Corp. (BTU:US), the largest U.S. coal producer by volume, reported today third-quarter earnings that beat analysts’ estimates. Coal sales increased and U.S. coal use is improving with natural gas prices rising, Greg Boyce, Peabody’s chairman and chief executive officer, said in his company’s third-quarter earnings statement.

“Peabody’s comments today were positive for the U.S. coal sector,” De Maria said, and may be affecting Caterpillar’s shares.

Caterpillar rose 1.5 percent to $85.08 at the close in New York. The shares (CAT:US) have declined 6.1 percent this year.

The company has slipped to fourth-worst performer on the 30-member Dow Jones Industrial Average this year after ranking as second-best in the first two months.

2013 Outlook

Construction industries’ sales will improve in 2013 in the U.S. and sales growth in China will come off low levels this year, Caterpillar said. These improvements will be partially offset by “continuing weakness in Europe” and dealers lowering inventories globally, the company said.

From an economic standpoint, 2012 has been a “disappointment” because of lower-than-expected growth in the U.S. and China, and with much of Europe in recession, Caterpillar said today. It lowered its forecast for world economic growth this year to 2.5 percent, the weakest since 2009, from an earlier projection of about 3.3 percent.

The company said today that profit this year will be $9 to $9.25 a share on sales of about $66 billion, compared with a July forecast for per-share earnings of about $9.60 on sales of $68 billion to $70 billion.

Last month, Oberhelman cut Caterpillar’s profit target (CAT:US) for 2015 to $12 to $18 a share, from an earlier projection of $15 to $20, and said revenue this year may be around $2 billion lower than forecast.

Retail Sales

Caterpillar said last week its global retail machine sales growth reported by dealers slowed to 6 percent in the third quarter on declines in Latin America and the region that includes Europe, the Middle East and Africa.

The retail growth rate also slowed in the Asia-Pacific region and North America. In comparison, retail-machine sales grew 13 percent for the three months through August and 14 percent for the three months through July.

China’s growth rate dipped to 7.4 percent in the third quarter, the lowest since 2009. The world economy will expand 3.3 percent this year, the slowest pace since the 2009 recession, and 3.6 percent next year, the International Monetary Fund said Oct. 9. Bank of Israel Governor Stanley Fischer said Oct. 15 that the world is “awfully close” to a recession.

While not predicting a recession, Caterpillar said today it’s “not expecting improvement in overall economic growth until the second half of 2013” and forecasts 2013 economic growth of about 2.7 percent.

To contact the reporter on this story: Shruti Singh in Chicago at ssingh28@bloomberg.net

To contact the editor responsible for this story: Steven Frank at sfrank9@bloomberg.net


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Companies Mentioned

  • CAT
    (Caterpillar Inc)
    • $95.89 USD
    • 1.86
    • 1.94%
  • BTU
    (Peabody Energy Corp)
    • $10.85 USD
    • 0.39
    • 3.59%
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